Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[SmokyPeat]

Man, that big ol' grin on Biden's face in response to the reporter asking about layoffs at Tesla was almost as cringeworthy as his Cornpop stories. At least he managed to deliver the "to the moon" snark relatively deadpan. Glad Elon took the high road in his response.

 

[Electroman]

I'd say 24k salaried is a little low, but estimates of 60k are probably high. I'm expecting 3-5k firings from this... that is a shot in the dark number though.

Where did this estimate of 60K come from? Lora? Russ?

 

[jerry33]

I never suggested there wasn't a legitimate gripe, just that being ignored is not the same as a direct personal attack. Elon's childish response is just another all too increasingly frequent example of poor choices in communication.

Seems to me that calling number zero the winner and leader is an attack. This goes far beyond just "not mentioning".

 

[AudubonB]

MODERATOR:

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And This MEANS YOU.

 

[StarFoxisDown!]

I'd say 24k salaried is a little low, but estimates of 60k are probably high. I'm expecting 3-5k firings from this... that is a shot in the dark number though.

24k is actually about right.

55-60% are factory workers
20-25% are in service/delivery centers

15-20% in salaried office workers

The number of salaried office workers is way smaller than people think it is. I know some of the headcounts of their software dev teams and they're relatively small. Then when you add in the % of salaried workers that are off limits such as FSD team, I'd put the number of workers at risk for being laid off to be around 15,000-20,000

 

[StealthP3D]

Every company does that. During downturns, companies need to cut expenses to survive. It only makes sense to cut your poorest, least productive individuals. Not like the are going to cut their best and brightest.

Generally, lowering headcount during recessions is not done so companies can "survive", it's done to prop up earnings/share prices and placate shareholders.

 

[UCF3]

potential for Optimus robot coming soon. This would take over menial tasks in the factory, saving labor and Workers insurance as well as increasing speed.

You really think Optimus is anywhere close to being ready to replace factory workers? No chance

I've to wonder ....

We know this is going to be not a great quarter because of lower production. Is Elon not liking where the "fixed" cost of salaried people is at ?

This has already been settled. He’s using this as the rationale for firing salary folks who won’t come back to the office

 

[JSML]

It's incredibly poor judgement to say, "Good luck with the trip to the moon", when the moon mission involves American taxpayer dollars and real American astronauts with real families at home! It's actually despicable beyond word and un-American. And it's unclear what he thinks a moon trip has to do with how Elon thinks the economy looks.

If recent events can cause me to no longer self-identify as a democrat, and I no longer do, something tells me it's the democrats have imploded, not the republicans! This is exactly opposite what I expected after the last administration, I am not happy to report this. And Elon has firmly positioned himself as a political force to be reckoned with.

Please don't use this comment to launch into political debate, I'm just making an observation that I think has a lot of relevance to Elon and his companies going forward. I am not asking whether you think my changing political identity is justified or wise, it's just a data point that I think must apply to many other life-long democrats who are similar to me.

Doesn't Biden just mean good luck with the moon landing trip? Elon just got awarded a project to land astronauts on the moon.

 

[ZachF]

Where did this estimate of 60K come from? Lora? Russ?

60k salaried would be like $10b in labor costs… way to high. 24k is probably pretty close.

 

[henchman24]

Where did this estimate of 60K come from? Lora? Russ?

It has popped up on Twitter and is the high end of the guesses. To me, 24k sounds way too low, and 60k sounds way too high.

I'd say Tesla was likely around 105-110k employees recently (given growth since 100k at end of 21). Reasonable to assume ~50-60k are directly tied to factories and production. Leaving ~45-60k ranging from service to accounting to software etc. A lot of those won't be salaried, but a lot will.

 

[StealthP3D]

Doesn't Biden just mean good luck with the moon landing trip? Elon just got awarded a project to land astronauts on the moon.

Only if you are unable to recognize sarcasm when you see it.

 

[bkp_duke]

Trump slowed the transition to EVs and clean energy. You have to have your head in the sand if you dont realize that. You know what Elon says is the key mission. Trump still freaking attacks wind energy and solar. Of course EV awareness has increased, how much more would it have increased had Trump not gone against green energy movement. Trump did it to rally his base against Climate Change and because he doesnt like windmills altering view from his golf club in Scotland. Biden gave Ford and GM pats on the back to soothe nerves of workers in rust belt states that if they lose jobs the Climate Change deniers take over for a long time. Patting Texas and California Tesla on the back does the opposite of soothing those nerves. Yet when it came to cold hard cash Tesla is who has benefitted over $300M in additional regulatory credit sales in 1 quarter alone.

Sure, Trump slowed the green transition, but he didn't SPECIFICALLY TARGET Tesla. Biden's bunch of clowns have.

 

[bkp_duke]

It's incredibly poor judgement to say, "Good luck with the trip to the moon", when the moon mission involves American taxpayer dollars and real American astronauts with real families at home! It's actually despicable beyond words and un-American. And it's unclear what he thinks a moon trip has to do with how Elon thinks the economy looks.

If recent events can cause me to no longer self-identify as a democrat, and I no longer do, something tells me it's the democrats have imploded, not the republicans! This is exactly opposite what I expected after the last administration, I am not happy to report this. And Elon has firmly positioned himself as a political force to be reckoned with.

Please don't use this comment to launch into political debate, I'm just making an observation that I think has a lot of relevance to Elon and his companies going forward. I am not asking whether you think my changing political identity is justified or wise, it's just a data point that I think must apply to many other life-long democrats who are similar to me.

Honestly, I would be the first thing that popped into Elon's head was:
"Good luck America getting back to the moon without SpaceX".

Fortunately, he thought better and didn't post that.

 

[StarFoxisDown!]

It has popped up on Twitter and is the high end of the guesses. To me, 24k sounds way too low, and 60k sounds way too high.

I'd say Tesla was likely around 105-110k employees recently (given growth since 100k at end of 21). Reasonable to assume ~50-60k are directly tied to factories and production. Leaving ~45-60k ranging from service to accounting to software etc. A lot of those won't be salaried, but a lot will.

No, do the math. Look up how many service/delivery centers Tesla has across the world. Then multiply by the number of employees per delivery/service center. Most of these employees are not salary.

The number of office salaried employees is way smaller than you're estimating.

 

[Gigapress]

I've to wonder ....

We know this is going to be not a great quarter because of lower production.

Shanghai issues in Q2 are bad, but are balanced out by:

• Wave of price hikes from Jul-Nov ‘21 starting to hit in Apr ‘22 based on the delivery date estimates from Tesla (7-10 months of delay)
• Growth from Fremont, Berlin and Austin
• Shanghai team “coming back with a vengeance”

My model’s middle estimates:

• $3.05 GAAP earnings per share in Q2, up 7% from Q1
• $1k increase in gross profit per car from Q1, in line with recent improvement trends since Q1 ‘21
• Total global deliveries match Q1 ‘22, assuming the estimates I used on May 11th don’t need major updates (I haven’t checked since then)

Derivation:

The prevailing expectation is that Q2 will be terrible because of the Shanghai shutdown and inflation, but we have price increases incoming, the Tesla team are cost control magicians, and volume might not be as bad as it seems. I expect Q2 profits to surprise many. Disclaimer: This is not financial advice or investment advice. This is my amateur opinion.

Spoiler: ASP Increases and ZEV Credits

In April I inaccurately predicted that the wave of price increases from Oct & Nov 2021 had begun to hit in Q1.

The earnings report ended up showing that ASP only increased $712 over Q4. Nevertheless Tesla beat on earnings anyway primarily because of the ZEV credit windfall that gave a bonus of $1k per vehicle plus probably some unexpectedly good insurance profitability embedded in the numbers.

Across all variants the price increases were about $3k for the 3 and $4k for the Y. The Long Range S&X both increased $5k while the Plaids stayed the same. The Tesla website was on average across major markets globally showing March to June delivery estimates at the time the price increases went into effect for Standard Range and Long Range variants and December for Performance/Plaid variants. Considering both the uncertainties in estimating 1) the actual delivery timing and 2) the mix improvement away from Model 3 in favor of higher margin Y/S/X sales, these price increases represent a plausible range of around $1k to $4k bonus for ASP over Q1. Subtracting out the $1k anomaly bonus from ZEV credits in Q1, the net expectation is $0 to $3k average revenue per delivery increase over Q1, with maybe $1.5k as a decent middle estimate.

Spoiler: Cost and Gross Profit

Tesla has demonstrated extremely good cost control in the last couple years as ASP has not been increasing even with material, wage, logistics, and supplier costs all increasing. The earnings reports show that Tesla have been unwaveringly innovating faster than the economy can collapse. On the Q1 call the leadership team repeatedly emphasized how difficult Q1 had been for their supply chain and logistics, even compared to Q4’s mayhem. Also, Tesla prioritized premium variants to some extent and sold 1k more S&X than they had sold in Q4, and these cost more to manufacture than the other variants. Yet despite all of this, average cost per car in Q1 miraculously had increased merely $94 over Q4!

I expect that if inflation were to drive up average cost per vehicle, then it would be will be by $1k at most, which would be a 2.7% bump from Q1. So, a middle estimate for cost per vehicle increase is $500. That leaves $1.5k - $0.5k = $1k extra profit per car this quarter. In Q1, auto gross profit was $5.539B on deliveries of 308,650 310,048 for $18k $17.9k [June 3rd correction to original post from May 11th] of gross profit per vehicle. And now this model projects $19k for Q2!

Spoiler: Shanghai Production

Suppose we will have lost one month’s worth of Shanghai production in Q2 because of the COVID lockdowns. Elon just said yesterday that he was in talks with the Chinese government who have him a clear message that the lockdowns will not be an issue in the coming weeks, and meanwhile Tesla is operating at partial capacity. We lost two weeks in Q1, so the relative impact was 4-2=2 weeks extra in Q2. This would’ve been about 35k vehicles extra COVID-related production loss in Q2 over Q1.

Production data shows that Shanghai had been ramping on a tight linear trend before the lockdowns began. They are completing an upgrade soon. It would not be surprising to see the remaining two month’s worth of production hitting 70k and 75k units each, effectively adding about 15k bonus units relative to Q1.

So overall I would expect 15k - 35k = -20k change in Shanghai production in Q2 vs Q1.

Spoiler: Berlin/Austin/Fremont Production

Berlin and Austin will produce 20k vehicles in Q2 if they make 1.5k vehicles per week combined on average across the Q2 ramp, which seems like a reasonably conservative estimate. Supposedly Berlin was already at 0.35k per week at the beginning of April.

If so, Berlin and Austin will have picked up all the slack from Shanghai and cancelled out the impact.

Then, Fremont is still squeezing out a bit more cars each quarter and may conservatively increase 5k as supply constraints ease compared to Q1 as Tesla have officially guided a couple weeks ago and as they get better at building the refreshed S&X. This would take the total for Q2 deliveries to 315k up from 310k in Q1.

Spoiler: Q2 Earnings Forecast

315k deliveries
$19k gross profit per car
—> $6B GAAP auto gross profit

If OpEx jumps to $2B with the new factories opening plus Shanghai administrative inefficiencies, and if Tesla Energy continues to break even financially, then total quarterly earnings before tax would be about $4B. If Tesla’s trend of setting aside 10% for income tax continues, that leaves $3.6B GAAP net income or about $3.05 GAAP earnings per share which would be up 7% from Q1’s $2.86!

Trailing twelve month GAAP earnings per share would increase from $7.37 to $10.35, up 40% from Q1! At today’s $750 share price that would give a TTM P/E ratio of 72, even with massive earnings growth looming as the new factories hit volume production and as Energy and FSD present potential upside in the next 2 years.

Say.com Q1 Earnings Question:
“How much of an impact will the production shutdown in Shanghai have in Q2?”

Elon Musk: (12:57)
“Well, we did lose a lot of important days of production. And there are sort of upstream supplier challenges where a lot of suppliers also lost many days of production. But Tesla Shanghai, Giga Shanghai, is coming back with a vengeance. So I think notwithstanding, with new issues that arise, I think we will see a record output per week from Giga Shanghai this quarter, albeit we are missing a couple weeks. So that means that most likely vehicle production in Q2 will be similar to Q1, maybe slightly lower. But it’s also possible we may pull a rabbit out of the hat and be slightly higher.”

…

Alex Potter: (51:32)
“Okay, great. First question I had was the extent to which other plants, outside of China, are insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID lockdown things gets out of hand, clearly that’s going to continue impacting Shanghai, but is there a point at which it could actually also impact other facilities?”

Elon Musk: (51:59)
“Yeah, if it were to continue. There are some parts that are sourced in China that apply worldwide, and that would impact production elsewhere. But all indications are that we’re out … Because Shanghai is back in production at fairly high levels already, and so our suppliers … So we don’t think this is going to be a big deal.”

This was said on 4/20 and the tone didn’t sound any different yesterday three weeks later.

 

[bkp_duke]

It didn't help that the Texas Legislators declared battery storage to be electrical production which eliminated companies such as OnCor from deploying battery storage to even out power surpluses and deficits. Had they not done this, most of the problem two years ago would have been non-existent because battery storage would have carried Texas over in many cases. OnCor did have a plan to purchase Tesla batteries, but as soon as the Legislators found out about it, they declared battery storage as energy production stopping the sale.

Thanks, unaware of this tid-bit. Would be interested to see how the same legislators would vote now that they have egg on their faces from the large outage, and that Tesla is quickly becoming one of the largest employers in TX.

 

[capster]

Agreed. Also this hourly vs salaried clarification seems to have been in our face all along…his statements about how WFH is over. Factory, hourly, workers generally don’t have the option to WFH, typically that's salaried desk jobs. So, this issue Elon has with the workforce is not with the hourly factory workers who never had the option to "phone it in", who are still ramping production and explains why they are still hiring those positions....Bullish IMO.

Since salaried workers work in the same buildings and go to the same cafeterias as the hourly workers and are visible to them, the hourly workers could perceive a lack of diligence on the salaried workers side if those workers are not around much. This could harm morale and affect production.

 

[thesmokingman]

Suddenly everyone's an MBA...

 

[bkp_duke]

Suddenly everyone's an MBA...

True, but in fairness . . . have you been around people getting their MBAs? They spend a lot of time at the bar. LOT of time. And apparently you can squeeze in an MBA during your spare time on nights and weekends.

 

[MountainRatMat]

Generally, lowering headcount during recessions is not done so companies can "survive", it's done to prop up earnings/share prices and placate shareholders.

While I 100% agree with this statement I also think Elon wants to trim the fat. He's looking for efficiency wherever he can and he does this on a regular basis.

Elon is a margin monster, he knows how to make money with a company and one of those ways to make money is get rid of the dead weight.

...sometimes without consequence but that is how Elon operates.